Profit and Revenue are Lousy Core Values

Profit and Revenue are Lousy Core Values

As I mentioned last week, I am down with COVID and tired, so spending more time reading rather than working. I read Bill Browder’s Freezing Order this weekend, and I highly recommend it. However, at the end of the book, Browder says that oligarchs, autocrats, and leaders like Mohammed bin Salman are enabled by the professional service providers that help them. As I reflected on this and Browder’s allegations in his book against John Moscow et al., I had to think, why do these lawyers, bankers, accountants, etc., work for these characters? They know the abuses that their clients commit but are willing to overlook them because their clients pay enormous sums. We saw what Paul Manafort earned helping Russia in Ukraine and Jared Kushner’s recent investment from MBS, so money is the driver. However, money is a lousy core value.

Now don’t get me wrong, I would like to earn a lot of money, but I am not willing to sacrifice my core values. If money, or some proxy like revenue or profit, is your core value, you can have no other core values. Money as the core value overrides any additional core values you may claim and justifies any behavior because the behavior is driving money.

Issues with Money as a Value

So if money is the core value, then the firm attracts those who believe in money as a core value; however, that can cause other issues. For example:

  • Loyalty to the firm. If money is the core value, there is no loyalty to the firm as they will move for more money as that is their value. Also, they will do things that can hurt the firm if it brings in more revenue. Here are some examples: Arthur Andersen and Enron, Perdue Pharma and the opioid crises, Boeing 737 Max, and McKinsey’s recent scandals.
  • Loyalty to clients. Again there can be no objection to doing something that harms a client if it makes the firm more money as that is the driver. Bill Browder’s book gave a classic example of this with the behavior of John Moscow and Baker & Hostetler. If my research backs up Browder’s claims, I would never recommend Baker & Hostetler to anyone I know and any attorney there is a damaged product in my book.
  • Loyalty to colleagues. There is none because making money is all-important, so why sacrifice money to help a colleague?

Now, the scandals above made many a lot of money. If money is your driver, then great. But your legacy is what you did for others, and that is how you are remembered once you’re dead. I would not want people to say, “He was responsible for the death and damage of many.” If that is how you are remembered, many will revile you in time, and your family may start to distance themselves from you. I ran into a high school friend several years ago and mentioned I had met her father after his release from prison. She was so embarrassed she walked away and never spoke to me again. So sad.

As I reflect on all the people I have met in my career, I would say that lawyers are the most unhappy and wish to be doing something else. Now that is not all lawyers, just more lawyers than others. I think that is because many law firms have no culture and will act for any paying client. If your client is against your values, you have sacrificed them for money, which leads to unhappiness because, as we have all heard, “Money doesn’t buy happiness.”

Many of the people involved in the above are on the redemption trail, e.g., Andy Fastow from Enron. But, when you look at him speaking and think of how many people’s lives he knowingly damaged, I have to ask, does going on the speaking circuit redeem him? To me, No.

Culture is Critical.

As discussed earlier, Boeing sacrificed decades of industry safety leadership for profit. The Tory party, today, is sacrificing all its value for power. Once you go down that road, your reputation takes a very long time to return and often more than a lifetime. So it is critical to define your core values. I recommend that you determine your core values and define the expected corporate behaviors that your values prescribe. Then stick to them above all else. As Jim Collins said, “You would sacrifice profit rather than your core values.” Also, when hiring, look at where a candidate has come from, and that firm reflects your core values. It is easier to teach a skill than new values.

As you reflect on decisions, always think of your “elder” self looking back at the end of life and ask, is that how I want to be remembered?

(c) Copyright 2022, Marc A. Borrelli

 

 

 

 

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I am currently sick with COVID, so, killing time yesterday, I watched Downfall: The Case Against Boeing about Boeing’s issues with the 737 Max and how the focus and financial results versus anything else led to the problems with the plane. The company focused on production, and so it scrificed safety to meet financial performance. One of the documents in the documentary was a little like Ford’s one with the Pinto. They knew there was an issue but calculated that the odds of people dying were so small that they could figure a solution in the meantime. So over 300 people lost their lives. When the Lion Air accident occurred, Boeing blamed the pilots for not being correctly trained on a system it had not disclosed. When the Ethiopian crash occurred, the pilots had done everything Boeing recommended, and it still blamed them and their training. As a result of the Max crashes, Boeing’s reputation for safety and engineering excellence has been tarnished and will take many years to reclaim.

Whether or not, as the documentary claimed, the move of company headquarters from Seattle to Chicago to separate the engineers from the executives is true, the company sacrificed its core values of safety and engineering for a higher share price. The memos reveal the company’s effort to hide the MCAS system from pilots and regulators, so more certification by pilots would not be required. The company seems to have come a long way from Tex Johnson’s barrel roll of the 707 prototype over Lake Washington in August 1955. during the Gold Cup hydro races, where a crowd of 250,000, including airline executives from around the world, were attending. That sold the aircraft!

The company’s focus on financial performance and share price enabled the price to rise into the $300-$400 range; however, the Max took it below $100, and its performance over the last five years is a loss of 4%. Over the same period, Boeing’s most significant competitor Airbus has seen its share prices increase by 34%. Sacrificing your core values for profit is never the solution, and profit results from your core values, not the driver!

Furthermore, in speaking with an FAA-certified engineer, he said the Max had damaged the FAA’s reputation worldwide. Where once, if the FAA said something was good enough, other countries would follow along, no more.

Finally, one more sad indictment of current U.S. public corporations was when Dennis Muilenburg resigned as the CEO and board director after the two crashes of 737 MAX aircraft and the loss of 300+ people; he received $62.2m in stock and pension awards. But as we repeatedly see, if you are the CEO of a public corporation, accountability is different. You may be fired, but you will get paid very well, unlike anyone else.

(c) Copyright 2022, Marc A. Borrelli

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2021 Resolutions, A Scorecard

Last year I shared how I came up with resolutions to meet my business and personal needs in my blog post, New Year’s Resolutions, Once More Unto the Breach. I broke my 2021 resolutions for 2021 into three areas and scored them as follows:

Business

  • Have five coaching Clients on annual contracts.
  • Have 14 Vistage Clients.
  • Start every day with affirmations and plan the day’s events around the 5 x 5 framework.
  • Migrate all non-value work to outside services, e.g., accounting, calendar control.
  • Stick to marketing plan for:
    • Social Media;
    • Blog Posts;
    • Newsletters; and
    • Webinars.

Personal

  • Walk five miles four times a week.
  • Do yoga three times a week.
  • Stick to a new diet of limited dairy, carbs, and sugar.
  • Work on Spanish 30 minutes a day and start having online conversations in Q2 once a week.
  • Read/listen for an hour every day for books on my booklist.

Relationships

  • Take a two-week vacation with my wife in 2021.
  • Take a long weekend vacation once a quarter.
  • Speak to my children once a week to support them and not solve their issues.
  • Develop a calling plan for “old” friends to be called through the month. 
  • Ensure that I am truly present when I am with my wife, children, or friends. I have put electronics away, emptied my mind of the usual distractions, and focused on them.

If I had to score myself on my achievement of the resolutions, I would give myself the following scores on a 0 to 10 scale:

Business 5.65
Personal 4.60
Relationship 8.20

Not great, but not bad. However, I looked over my resolutions; I realized that little had changed in my plans, and my 3HAG was still basically the same. Thus, the goals I had set myself were still appropriate. 

2022 Resolutions

So the real question was how to ensure that I do better. Listening to a podcast with social psychologist Wendy Wood, she said that you need to tap into your unconscious mind if you want to change your life. Wendy is the world’s foremost expert on habits and the author of “Good Habits, Bad Habits: The Science of Making Positive Changes That Stick.” According to Wendy, research had shown that the success of achieving resolutions had little to do with willpower but sticking to the plan. Contrary to popular opinion, it takes three months to develop a new habit, not three weeks. So if during three months you fail, don’t give up. Commit to it again and keep trying to stick with it; the longer you do this, the more successful you will be. Furthermore, To adhere to it, you had to do two things.

  1. Minimize friction that stops you from achieving it. For example, if your goal is to lose weight, and the reason you fail is you eat the wrong things, then get rid of all the “bad” items in your house, which will minimize the chance of your missing your goad.
  2. Increase friction for those things that lead you not to do it. For example, if your goal is to increase how much you read. Then make where you read inviting and comfortable and get rid of distractions, so don’t bring your phone with you and remove the TV.

So with all my resolutions, I have looked at how to change the friction involved. I need to ensure I don’t miss those items I succeeded with last year. However, to show how I am looking at friction, I thought I would provide examples of those resolutions I failed most.

Adjusting Friction

So let’s look at last year’s resolutions where I failed and determine what friction I can minimize and maximize to ensure better success.

Have five coaching Clients on annual contracts. 

This resolution I failed as I have far fewer than five on a yearly contract. However, last year, I had about five clients who hired me for short-term periods, i.e., three months to work with them. While admittedly, annual contracts would be better, I have found that these engagements were very positive. I was able to help clients with specific problems and improve the relationship between myself and my clients, leading to more repeat business and referrals. 

So what is the friction involved? 

  • Friction to reduce. A mindset that I had to sell an annual contract, rather than a mindset of fixing the client’s issue and seeing where the relationship would lead us. 
  • Friction to increase. Don’t propose anything until I know the prospect’s most significant issue and only focus on that. So I have built a questionnaire, and until I can answer it, I don’t propose a solution or relationship.

Do Yoga Three times a week.

So last year, I did yoga three times! Quite a fail, given it, was a resolution. So again, what caused me not to do it? Only with that knowledge can I fix it? There was a multitude, but primarily I realized that they all came back to allowing insufficient time. So what frictions do I need to change to ensure I get it done.

  • Friction to reduce. Not planning time for yoga meant I was trying to fit in when I had a gap in my time, which doesn’t happen. So I am now booking it in my calendar every Sunday for the week. I can’t preplan it on an annual basis as other things come up which change my availability. Still, I can set aside an hour and twenty minutes for yoga and shower three times a week, every week, if I plan accordingly.
  • Friction to increase. I am committing to a friend to do this and sharing my calendar with them. Then they can check on me and hold me accountable.

Develop a calling plan for “old” friends to be called through the month. 

Again, my performance on this item was mediocre at best. I called a few people but not nearly enough. Looking at my results, I realized that I would primarily forget. So what frictions do I have to change.

  • Friction to reduce. Make a calendar appointment every week to call some old friend. To assist, I have a calendar entry and put in their name and phone number, so I don’t have to decide whom I will call and then look for their number. Helping in this regard, I look on social media to see whose birthdays are that week and try to phone the day to wish them a happy birthday and let them know I am thinking of them.
  • Friction to increase. I am reaching out on social media, e.g., Facebook, Whatapp, or LinkedIn, to let them know I plan to call them that week and hope we will talk. I am also leaving a message to say that I called and hope they will call back.

Next year I look forward to reporting back and letting you know my progress. I hope you will look at your goals for 2022 and see how changing the friction involved will help you achieve them. If you want to have someone hold you accountable over them, then feel free to share them.

Feel free to reach out if you want to discuss this with me.

 

Copyright (c) 2022, Marc A. Borrelli

 

 

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You need to take an extended vacation. No, seriously, you do.

You need to take an extended vacation. No, seriously, you do.

Not only do you need a vacation, but it needs to be at least two weeks, and preferably longer. I have given many CEOs and business leaders this advice over the years, and I believe in it. 

Why a minimum of two weeks? Well, you need the first week to unwind and let work “go.” The second week, you truly relax, the tension of work and all its issues leave, but the brain continues to work in the background. After two weeks, I start to see the forest for the trees. The problems that were prominent in my life no longer are as relevant as I thought they were. Turning to my navigate sage power, I turn to my elder self to look back and see what is essential and what I should be focused on rather than that what has my attention.

Now I am unwinding

However, like the old saying, “Physician heal thyself,” I have failed to heed my advice until two weeks ago. I am now sitting in NE Spain, enjoying a quieter time and relaxing with good friends, food, and wine. To ensure my disconnection, I have adopted the following rules:

  • Limit email activity to 15 minutes a day.
  • Disconnect from Facebook (well, I effectively did that a couple of years ago) and all social media other than LinkedIn. 
  • Post to LinkedIn, but according to a plan, it takes about 5 minutes a day.
  • Avoid the news and television.
  • Reading lots but no business books.
  • At least 30 minutes of meditation a day.
  • Walk at least 5 miles a day.
  • Swim as often as possible in the ocean.

These rules are not complicated, but we are so conditioned to remain connected and tuned in that it takes effort to disconnect.

As I relax, I remember that I, like my clients, need to take an extended vacation to recover from the low-level stress of COVID over the last eighteen months. COVID has taken a toll on me, and more than I realized. While I have been active during COVID, I recognized that I have been reactive more than proactive. Now, not only do I want to change this behavior, but I am framing it around what I want to accomplish in Q4 2021 and 2022. 

The benefits for you

Sitting in quiet squares or overlooking the ocean, the focus has gotten more precise, the planning more effortless, and many things are just getting crossed off the list or deleted. Also, I am finding that I can better help my clients as my mind declutters.

I am focusing on achieving my long-term goals and not get distracted by what is in front of me. By refocusing, I realized much of what I was doing was not relevant to the long-term goals and thus a distraction.

Now, I can’t say that everything will be done and perfect at the end of this. But I will have more energy, be much better mentally to deal with what lies ahead, and cope with winter.

The benefit for your business.

Taking a minimum of two weeks off provides additional benefits too. You can see how your business operates without you. You will have answers to the following questions:

  • Does my leadership team function well in my absence? Are they aligned, and Is there conflict?
  • Do my team and company understand its mission, strategy, and purpose?
  • Does the organization continue to hit its KPIs for the quarter?
  • Do my clients need to deal with me, or can my team handle the clients’ needs?

I have asked many clients how their business would perform if they were unavailable for three to six months, and the answer is usually “Fine.” However, if you cannot go away for two weeks and disconnect, is that true?

If your business cannot operate without you, you don’t have a business; you have a job! To successfully leave your business, you have to make yourself redundant. Only by creating your own redundancy can you sell it, pass it on, or assume a non-executive position. I realize for many business owners, this isn’t easy, as their identity is tied up in their business, but to create a more significant legacy, ensure it operates without you.

So when did you last leave?

As I said earlier, with COVID, I hadn’t taken a vacation in 18+ months. Not only that, but with WFH, I had, like many others, increased the amount of time I was working which typically included at least one full day of every weekend. All of this took a toll.

So when did you last take a “proper” vacation for at least two weeks? Did you disconnect, or were you on calls and emails all the time, putting out fires and saving the company? The stress of the last eighteen months has taken a mental toll on all of us. If you don’t take a break and let yourself recover, you will be ill-prepared for what is ahead. While none of us know what is ahead, we can be sure that labor, supplies, and demand will be unpredictable. 

COVID and its effects are not done. I feel like we’re just finished the first half, but there is another half to go, and the opposing team that emerges from the locker room has a new strategy.

If it has been a while since you took an extended vacation, take one now, you will be amazed at how much you and your business will benefit.

 

Copyright (c) 2021, Marc A. Borrelli

 

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A small Scottish company shows how being famous for something works

A small Scottish company shows how being famous for something works

I recently discussed how you must be famous for something. If you’re famous for something it is easier to:

  • focus on what you can be the best at, 
  • find your “tribe,” 
  • tell people what you do, 
  • get referred, and 
  • define your core customer 

While we all know of companies like Apple and Tesla, not only can large companies achieve this, but small companies have achieved the same thing by carefully defining their niche and what they want to be famous for. An example is Linn Products Limited, a Scottish engineering company that manufactures hi-fi and audio equipment and is renowned for reproducing music neutrally as possible. In 2020, Linn’s revenue was about £20MM, so it is not an Apple or Tesla. For clarity, I am an owner of some Linn products, and the picture above is my LP12 with a Naim power supply.

What Linn Was Originally Famous For

Linn became famous with its initial product, the Linn Sondek LP12 turntable, introduced in 1973. The company’s logo is the simple geometric representation of the ‘single point’ bearing, which was the unique selling point of the LP12. 

What did Linn achieve with the LP12? Hi-Fi Choice reviewers voted the LP12 “the most important hi-fi component ever sold in the UK,” and The Absolute Sound ranked it the second most significant turntable of all time in 2011. Hi-fi reviewers sometimes use it as a reference turntable, and Robert Harley said, “It’s impossible to imagine the high-end industry without the LP12”.

The company’s controversial founder, Ivor Tiefenbrun, has defined its philosophy – there are only two ways of doing things – the “Linn way” and the wrong way. The Linn way believes in the primacy of “the front end” (that the quality of the source was crucial for hi-fi music reproduction). Once the information was lost, distorted, or corrupted, it was gone forever and could never be retrieved. Basically, “garbage in garbage out.”

Whether you accept the Linn way determines whether or not you are part of the Linn tribe – “Linnies.” Linnies are committed to the Linn way and are true believers. Whether or not it is true is irrelevant; Linnies are the tribe that is the focus of the company’s marketing and products. To have such a dedicated tribe of customers and followers is indeed the ambition of many B2C companies. Now many others believe that Linn’s doctrine is prone to “propaganda, brainwashing, historical revisionism and other ways of interpreting reality.” 

Technological Excellence

While a hi-fi company, Linn has relied on technological excellence to maintain its reputation. All its equipment is impressive, with the fit and finishes reflecting the product’s price point. The products are built to minimize unwanted electrical and mechanical interactions that could degrade the performance. Casework is damped to reduce the impact of external vibrations. When products are sent to Linn for repairs, they are returned with:

  • a copy of the diagnostic analysis of the problem:
  • photos of the problem areas;
  • how it was fixed;
  • pictures of the replaced components; and 
  • all signed by a specific engineer. 

This service further creates the image of technical excellence. The company invests between 10% and 20% of its revenue in R&D to maintain its technological leadership.

Today’s Strategy – Digital

Over the years, the company has introduced new products, speakers, amplifiers, CD players (no longer), and digital streamers while still sticking to its philosophy. In 2007 the company’s strategy switched to supporting digital music playback of 24bit/192 kHz studio master quality recordings using a digital stream over a home network with digital technology. 

The company launched its first digital streamer in 2007, and since then, it has launched several others. Linn’s commitment to digital music has continued. In October 2010, Linn Records was awarded Label of the Year by Gramophone magazine because of the company’s commitment to improving the quality of the recording process and distributing music online at studio master quality. Since then, Linn provided its digital music players with internet access to lossless music streaming services (TIDAL & Qobuz) which provide access to a CD-quality library of over 60 and 50 million audio tracks, respectively.

Exact Technology

In 2013 it launched its Exakt technology, which in line with the company’s philosophy, was designed to eliminate many of the sources of music loss inherent in analog hi-fi chains. The company sought to prevent the signal loss by keeping the 24-bit lossless signal in the digital domain to the loudspeaker and converting it to analog at the latest possible stage. In 2014, the company launched speakers with the Exakt technology, which effectively turns the speaker into an intelligent, network-connected, software upgradeable product. According to the company, inside each Exakt loudspeaker is a proprietary digital platform that eliminates phase and magnitude distortion and offers room optimization. These speakers have the amplifier inside, shortening the distance from the amplifier to the speaker to prevent signal loss, and they received high critical acclaim

The LP12 Is Still Going Strong

The Sondek is still in production today and is benefiting from vinyl’s resurgence. There have not been any radical changes to the turntable’s design since its introduction. However, Linn has not sat still; the LP12’s sound quality has been improved through retrofittable upgrade kits, which consist primarily of refinements in materials used and improved manufacturing tolerances.

Initially, Linn manufactured the LP12 itself but relied on other manufacturers to provide components such as tonearms and cartridges. Supex cartridges, Grace and Sumiko tonearms, and Naim Audio amplification were the ones that filled that gap. Today, Linn produces its cartridges, tonearms, and amplification. However, one of the attractions of the LP12 is that owners can still use other components with it.

Linn currently offers four versions of the LP12 – Majik, Akurate, Klimax, and “build it yourself.” The differences between the versions are improved components to improve sound quality. Linn now offers a system that takes a feed straight from the tonearm base and digitizes the music in line with its strategy. The LP12 signal is converted to the 24bit/192 kHz stream and kept there until it gets to the amplifier.

How Linn Feeds Its Tribe and Creates Stickiness

While the Linn range of products has changed over the years, I believe that one of the ways it has kept its followers is by:

  • Staying constant in its philosophy;
  • Providing a range of its products so that it is easy for owners to understand the improvement paths;
  • Providing upgrades for many of its products; and
  • Moving with the times.

An excellent example of this is the discussions I see online, where someone who has always wanted an LP12 will find an old one that they can upgrade for less than the purchase of a new one. Thus, the company gets new acolytes who will buy products from them over time but are not driven away by the high cost of entry.

With its latest technology, the company is increasing the stickiness of its products. Those with Exact speaker technology, as mentioned before, have upgradable software systems, which provides more ways to offer upgrades to uses, as Tesla does. In addition, those with Exact speaker technology are tied to the company because if they want to change systems, they need to buy new amplifiers as the amplifiers are built into the speakers.

So How Does this Help Linn

As I mentioned in my previous piece, being famous for something is crucial. How has it worked with Linn?

  • Linn is famous for producing excellent HiFi equipment through engineering excellence.
  • Linn’s job is to capture music at the source as accurately as possible and reproduce it with minimal loss and as neutrally as possible.
  • Why does it exist? To providing musical reproduction excellence through engineering, attracting both customers and employees who believe in its vision.
  • People know what you do. Anyone who is an audiophile knows about Linn. Either they believe in it or not, but it is easy to find those that do or could and then refer them to the company. Those who don’t believe in the “Linn way” or want value amplifiers are not interested.
  • The tribe. The famous Linnies are in multiple Facebook groups and other online forums. At my reconning, there are over six thousand members, which, while not a lot, is ideal for a company whose strategy is low volume high margin. You will not find Linn’s products on Amazon or any discount sites. The company emphasizes using its dealer for all installations and equipment.
  • Selling value. Linn focuses on selling the “value” it provides. Its ranges – Majik, Akurate, and Klimax – have different price points, but its latest product, the Linn Klimax DSM (Digital Music Streamer Preamplifier), retails at nearly $40k.

For what are you famous?

If Linn, a small Scottish company, can achieve this, what stops you from being famous for something? 

Start with your Why? and At what can you be the best in the world? Jim Collin’s Hedgehog concept asks you to consider what would happen if you focused your energy and effort on one main thing. What could you become the best in the world at? Not that you are setting a goal to become the best at something; you understand with certainty what you can become best at. Most importantly, you also understand what you cannot become the best at.

From there, it becomes easier. If you would like help, contact me.

Copyright (c) 2021, Marc A. Borrelli

 

 

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